A libertarian view on politics and life in the late, great land of California

Wednesday, December 14, 2011

Bill Lockyer Throws Tantrum, Picks Up His Marbles and Goes Home

Those of us concerned about the looming catastrophe known as California's unfunded public pension debt had to be dismayed by the pension reforms Jerry Brown recently proposed. Partly this is because the plan doesn't go nearly far enough, given the size of the problem — conservative estimates put the unfunded liabilities of CalPERS, CalSTRS, and the UC retirement plan alone at $500 billion — and partly it's because even these tepid reforms don't stand a chance in the face of organized labor's opposition. Like it or not, this is a cliff the Golden State is probably going to drive over. If you don't believe us, this story about state Treasurer Bill Lockyer should tell you a lot about Sacramento's receptiveness to pension reform.

If you follow the pension issue in California, you're probably aware that the same Stanford research team that produced the $500 billion liability estimate has released a new report. Their original estimate, published in April 2010, found that the state's three biggest pension funds had a total unfunded liability of $425 billion as of 2008; in the absence of more recent data, the researchers assumed that the funds' heavy losses in 2008-09 pushed the unfunded liability north of a half-trillion dollars. Now, we have the data: using a risk-free rate of return (which makes sense, if taxpayers are guaranteeing the pensions), CalPERS, CalSTRS, and UCRP have a total unfunded liability of $498 billion. Under this assumption, neither CalPERS nor CalSTRS are more than 48% funded (UCRP is 61% funded); fully funding these two funds next year would require government spending on them to rise from $4.8 billion to an astounding $22.7 billion, or over a quarter of the General Fund budget, while fully funding the UCRP would require an additional $3 billion. In other words, if you thought $1 billion in trigger cuts were bad, this would be a catastrophe. Put simply, an honest accounting of public pensions would capsize government in California. In addition to calling for increased agency and employee contributions to pensions, the Stanford authors, led by former Democratic Assemblyman Joe Nation, call for reducing benefits to current workers and raising the retirement age.

Making these kinds of recommendations to the union-owned Democratic establishment in Sacramento, of course, will tend to get roughly the same reception as slandering the Koran in a public square in Riyadh. And yesterday, Treasurer Bill Lockyer announced that he was resigning from the pension advisory board of the Stanford Institute for Economic Policy Research, which issued the report. Lockyer's spokesman offered this bit of childish repartee: "When it comes to public pensions, maybe SIEPR should stand for 'Stanford Institute to Eviscerate People’s Retirement.'" Apparently, Lockyer thought the report failed to consider the legal difficulties of reducing benefits for current workers, and didn't account for the effect of including pension retirees on plans' boards. In other words, he ignored the math underlying the report's arguments and raised a silly objection as a way of discounting it entirely. Ladies and gentlemen, your political leadership!